The Future of VAT in Financial Services and Insurance


The Future of VAT for FSI – Fintech

Why fintech companies should care about the review of the EU VAT rules for financial services 

As part of its efforts to simplify the EU VAT rules the European Commission has launched an initiative to revise the EU VAT rules for financial services and insurance (FSI). These rules are criticized for being complex, difficult to apply and not having kept pace with the development of new (digital) services. In this contribution we will focus on some of the VAT aspects for fintech companies.

Author: Koert Bruins


The current VAT rules for financial services are complex and have not kept up with the developments in the financial services industry. The lack of VAT neutrality (businesses being unable to reclaim VAT associated with VAT-exempt financial and insurance services) is causing distortion of competition, high compliance costs, legal uncertainty and increased litigation. Whilst this problem has always existed since the introduction of the VAT system in the ‘70s, it is a much bigger problem in today’s complex world. Therefore, the European Commission is working on the launch of a legislative proposal to amend the VAT rules for financial services by the end of this year.


How fintech companies are affected 

Back in the days, when financial services were still provided by humans that were employed by banks, insurers and other institutional players, supply chains were shorter, less complex and most activities were performed inhouse. Today, there is much more automation and technology being used in the delivery of financial services and tasks are increasingly outsourced to highly specialized parties.

Fintech companies, too, are facing these very issues – perhaps even more so than incumbent financial services companies – because they typically (i) invest more heavily in technology, (ii) collaborate more in ecosystems and (iii) outsource non-core activities. And even if fintech companies themselves can recover VAT on costs – if their customers cannot, it makes the business case for working together with a specialized fintech partner less attractive. Finally, fintech companies that are scaling internationally are confronted with diverging VAT practices in the member states.

These VAT issues are hindering innovation and the digital transformation of the financial services industry. It is also gives EU-based fintech companies a competitive disadvantage compared to their peers outside the EU. Resolving these VAT issues could therefore contribute to the EU’s ambitious plans for fintech and digital finance.

Future of VAT for FSI

Access all contributions related to Future of VAT for FSI from our Deloitte EMEA FSI Indirect Tax network.  

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What the European Commission is doing about it

Last year, a working document was published with some preliminary observations and possible solutions to the issues identified. In a published roadmap, the European Commission seems to be focusing on the following two main policy options:

(i)    to remove the existing exemption in order to tax financial and insurance services; or
(ii)   to keep the exemption, but to modify its scope through taxing only some types of services, e.g. fee-based as opposed to interest-based.

How can fintech companies contribute to the public debate

In the first quarter of 2021, the European Commission launched a (now closed) public consultation on the review of the VAT rules for financial and insurance services. It is expected that the European Commission will deliver a proposal for a directive in the fourth quarter of 2021, after which another round of feedback will be opened.

Want to know more? 

Deloitte’s fintech VAT specialists will be happy to further discuss the implications of these developments with you. Also see our point of view on this initiative.

Our Deloitte EMEA FSI Indirect Tax network is set to contribute to the current debate on the revision of the EU VAT rules for financial services and insurance.
Over the coming months we will publish contributions from different parts of our network, please find all of them gathered here.

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